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Blog posted by: JACOB MOHUN HIMMELWEIT (JUNE 13, 2014)

The latest labour market figures again show employment is increasing, but there has been no corresponding good news for pay. Instead, more and more people are working for less with the economic ‘recovery’ failing to reach their pockets.

Comparing February to April 2014 with November 2013 to January 2014 there are 345,000 more people in work. The nature of this increase in employment seems initially promising too, with 80% in full time work and only 20% from potentially problematic self-employment. Over this same period the number of unemployed people also fell by 161,000.

Despite this, wages are still failing to keep up. The figures show average weekly pay grew by just 0.7% in the last year, meaning real earnings continue to fall with the inflation rate significantly higher at 1.8%. Worse still, our wages aren’t even moving in the right direction with that latest average weekly pay level down from the previous comparable figure of 1.3%.

You would expect increases in employment to improve pay as “slack” in the economy loosens and employers are forced to raise wages in order to find new workers, but this has not happened. Instead, despite the headline figure, the evidence suggests that many of us are financially no better off.

Consider the two graphs below. First, the employment rate since October 2008, and then the real wage growth rate, or average wages less inflation, over the same period. No doubt the government would be keen to focus on the former, which tells a positive story about returning to growth (incidentally GDP has returned to pre-crisis levels – only taking 6.25 years!).

This second graph, however, tells a different story. It illustrates not only how severe and prolonged the squeeze on wages has been since the crash in 2008, but that increased employment growth and the ‘recovery’ has made absolutely no difference.

For as long as this situation continues, no matter how much the economy ‘recovers’, the majority of people will simply not feel the benefits.

However, there are policies which could be used to ensure the economy does work for the majority. A NEF report coming out this July will demonstrate how structural inequalities and low pay could be simultaneously addressed. These include exploring ways to steadily raise the minimum wage to a sustainable living wage; introducing a statutory maximum ratio between high and low pay within organisations; collectively funded high quality, universal childcare; strengthening workplace collective bargaining; and the establishment of a green investment bank to generate good jobs and encourage a transition towards a more sustainable, healthy and more equal economy and society.

Watch this space.